High commission fee of up to 25% on the price of an order and delayed pickups are reasons restaurants are backing out from online food aggregatorsRicha Maheshwari | ET Bureau | Updated: August 16, 2016, 09:33 IST

Picture credits: ThinkStockSeveral restaurants are now backing out from food tech and hyperlocal delivery platforms such as Swiggy and Shadowfax due to high commissions and patchy delivery services. While some restaurateurs said high commission fee of up to 25% on the price of an order charged by delivery platforms has made it unsustainable, restaurants also blame delayed pickups, shabbily dressed delivery boys and deteriorating standards of food delivery for their exit.

“The basic problem with the industry is that they fail to deliver an experience similar to what we give our customers in the restaurant,” said Ashutosh Jha, associate vice-president for R&D at TGI Friday’s, which closed ties with food delivery players Shadowfax and FastOx.

“Many times we have waited for an hour or two for the delivery boy and had to instead re-cook the food and send our own staff to fulfill it,” he said. The company, which has 13 restaurants across India, is now working on selective menu for delivery, redesigning their packaging and plans to apply delivery charges on their orders. Bengaluru-based restaurant Berry’d Alive has pulled out from Swiggy and Roadrunnr for certain stores and plans to retract completely soon.

“Their volumes are increasing at the cost of our walk-in crowd. So their business is not adding to our topline,” said Aljeesh Siddique, managing partner at Caboodle, the company that manages Berry’d Alive. Swiggy and Shadowfax declined to comment.

According to a Morgan Stanley report, online food aggregation business in India can grow to $4.4 billion by 2020, implying a 134% annual growth till then. As the food delivery market in India is picking up with foodies and restaurateurs getting used to it, the industry is headed for a new challenge – retaining clients. Azure Hospitality, which has restaurant chains Mamagoto, Speedychow, Rollmaal and Mamapaati under its portfolio, now does most of its deliveries itself. The company has stopped using Shadowfax and Roadrunnr.

Westlife Development that runs McDonalds in west and south India, too, closed its ties with Roadrunnr. After heavily subsidising restaurants for the last two years to win their loyalty, the food delivery startups started raising their commissions from single-digits to a whopping 25%. They are under pressure to turn profit, say experts, as the funds are drying up and investors are looking for a sustainable business model.

While Swiggy clocked in a million orders in a month, TinyOwl, its closest competitor, got acquired by Roadrunnr. Smaller player Spoonfed shut its operations in Bengaluru to launch their services in Dubai.

There is a debate globally as to whether the marketplaces should take control of logistics or not. The marketplace business model, by its very nature, is high margin and scalable once market dominance is reached. Delivery adds to the cost of transportation and makes the model less flexible and difficult to expand, as it requires a large enough fleet during peak hours.

But by offering delivery services, a company can expand its network to even those restaurants that don’t offer home delivery. Another variant being applied by some companies is to have thirdparty delivery companies provide exclusive services to the marketplace, thereby benefiting from both variability of delivery cost and still maintaining control of the delivery experience.